MARCH 22, 2012

CVD Rate on Imported Fertilizers – Existing Enigma

By J M Kishore

LEVY of import duties on fertilizers has once again become complicated this year. Apparently, levy of BCD rate is clear, the problem has arisen in levy of CVD portion only. In the latest Budget 2012, vide Customs Notification 12/2012 Dt 17.03.2012, concessional rate of BCD 5% is retained for several products under Chapter 31 except in respect of a few "Water Soluble Fertilizers" and "Liquid Fertilizers" which attract BCD @ 2.5%.However, for levy of CVD, effective rate as per Excise Notifications is to be considered. As the CN 35/2011 which stipulated the CVD levy as 1% and existed till 16.03.2012, is now rescinded in the present budget 2012 and the uncertainty in the CVD rate has again cropped up.

What happened in the Budget 2011 ?

In the Budget 2011, two Central Excise  Notifications- CEN 1/2011 and CEN 2/2011 both dated 01.03.2011 were issued wherein fertilizers manufactured in India attracted BED 1% (Sl.No 40) and BED 5%(at Sl.No 21) respectively. The first one (CEN 1/2011) consisted of 130 items and issued with a condition that "the exemption is not applicable to the goods in respect of which credit of duty on inputs or tax on input services has been taken under the provisions of the CENVAT Credit Rules, 2004". In respect of the second Notification (CEN 2/2011), BED @ 5% Advelorem was leviable without any condition. When the trade as well as the field staff were in a confusion whether imported fertilizers are chargeable to CVD @ 1% or @5%, Board, in the post budget clarification, vide DO letter F.No. B-1/3/2011-TRU dated 25.03.2011 explained as below":

Doubts have been raised about the applicable CVD rate on the 130 items, on which Excise Duty @ 1% has been levied vide Notification 1/2011-CE dated 01.03.2011, when imported. It is further learnt that manual bills of entry have been permitted at certain customs locations as 1% CVD rate was not available in the system. This concessional rate of 1%, however, is available only if the Cenvat credit on inputs and input services is not availed of; otherwise all these items attract 5% Excise duty as prescribed vide notification 2/2011-CE dated 01.03.2011 and Tenth Schedule to the Finance Bill. At the time of updating of ICES, the Directorate of Systems had been advised not to feed Notification 1/2011-CE dated 01.03.2011 in the system as 1% rate will not be applicable for CVD purposes. There should have been no confusion on the subject. Since the CVD is levied to provide a level playing field for the domestic manufacturers, CVD is charged at a rate equal to excise duty rate. However, in respect of these 130 items, there are two excise duty rates. It needs to be appreciated that if CVD is levied @ 1%, the protection for the domestic manufacturer would be lost since in the country of origin, the overseas supplier enjoys input tax neutralization on goods exported to India (akin to availment of input tax credit), whereas on the other hand the domestic manufacturer suffers all the input taxes and 1% excise duty over and above that. Since 5% excise duty rate is payable when the cenvat credit of duties and taxes paid on inputs and input services is availed of, the tax treatment becomes equitable with the goods being imported into India, the input taxes having been neutralized in the country of export. As such, the CVD of 5% will be applicable in respect of all the goods covered under Notification 1/2011-CE dated 01.03.2011 and 1% rate will not apply.

Despite the detailed logic above, in less than one month, Ministry issued a Customs Notification CN 35/2011 dated 15.04.2011, vide which the  CVD leviable on Imported Fertilizers was reduced to 1%.

Changes in Budget 2012

In this Budget 2012, the Customs Notification CN 35/2011 is rescinded vide CN 22/2012 Dt.17.03.2012 and thus the concessional rate of CVD @1%, hitherto available for imported fertilizers does not exist and they attract CVD @ 6%(in view of the amendment of CEN 2/2011 by increasing the BED from 5% to 6% vide CEN 19/2012 Dt.17.03.2012).

It appears that the intention of the Government is not to charge 6% CVD on imported fertilizers and hence vide CORRIGENDUM Dt.19.13.2012, the entry at Sl.No 200 showing effective rates of customs duties for Fertilizers in the CN 12/2012 is corrected as under :

 in  the Table- (i)  in  S. No. 200 , for

As seen from the above, the first entry- 200(i) is shown with the description "composite fertilizers" which attract BCD 5%. For CVD rate for all imported composite fertilizers would be 6%. As per the existing entries, and the explanation in the notification regarding the "-" (dash) in the CVD column, the CVD is undisputedly 6% for Composite Fertilisers at Sl.No. 200(i) and for all goods specified in Sl.No.202 (in terms of Excise Tariff rate r/w CEN 2/2011)

Now for the second entry in Sl.No.200. It covers "All goods, other than those which are clearly not to be used as fertilisers". The BCD column indicates "-" (a dash) and as per the explanation in the notification 12/2012, "–" appearing in column (4) means basic customs duty leviable on the goods as per the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) read with any other notifications issued under sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), for the time being in force". As per The First Schedule to the Customs Tariff Act, 1975, the rate is 10% / 5% and when read with the CN 12/2012,many of these goods attract either 7.5% or 5% or 2.5%.CVD for this entry is now ,as per the corrigendum, 1%.

As seen from above, for clearance of imported fertilizers, one has to opt for two entries in the same notification.

Further, it is to be noted that there is no specific definition for "composite fertilizers" in either Customs or Excise. The common /general understanding is those fertilizers with combination of N,P,K and other nutrients or micro-nutrients are also termed as "NPK Fertilizers". As also seen from the entry at Sl.No.202 of the notification 12/2012, it contained such fertilizers with BCD 5% / 2.5%. It is not clear to many why another entry in Sl.no.200 at (i) Composite Fertilisers is given.

Problem in imports of some fertilizers such as UREA

In case of imports of UREA (under 3102 1000) ,importers have to opt for effective rate under the CN 12/2012. Sl.No. 203 for BCD portion and Sl.No. 200 (ii) for CVD portion. For better understanding, the entries are given as under.

The entry at Sl.No 203 specifies that BCD is 5% and CVD to be taken as "the additional duty equal to duty of excise leviable on the goods as per the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) read with any other notifications issued under sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944),for the time being in force. Thus the rate of CVD, now, would have to be 6% (The Excise Tariff rate is 12% but when read with Sl.No. 21CEN 2/2011 Dt.01.03.2011).

As another entry at Sl.No 200 of CN 12/2012 which is opted for BCD rate shows 1% in the CVD portion column, there exists a conflict in applicability of CVD rate. Legally, when a particular entry in the Notification is being opted, both the columns have to be taken for the effective rates. It may be technically not correct to consider only one Column(4) in an entry and another Column (5) in another entry for the purpose of determination of leviable rates. This conflict is possible for other goods also such as DAP, Potassium Sulphate, Potassium Nitrate, MOP etc in other Sl.No's 205,204,201,198 respectively.

Possible solution …

If the Govt. intension is to levy only 1% CVD on import of Fertilizers, in order to avoid these existing technical as well as practical flaws, it is opined that :

+ 1% shown in the CVD column for Sl.No.200(ii) may be omitted.

+ 5% may be specified in the BCD column against both (i) and (ii).

+ A separate notification may be issued, under Customs, specifying the CVD rate as 1% for all fertilizers as existed in the earlier rescinded notification–CN 35/2011.

EDI SYSTEM does not allow two BCD notifications for a single entry

During the last year, as importers were claiming two Customs Notifications – 21/2002 for BCD and 35/2011 for CVD and the EDI System software was not allowing concurrent use of two Customs Notifications to be fed into, at the time of data entry, all these bills were being assessed manually with Commissioner's approval for such filing. The same situation continues now also. It is also needed that the EDI Software is modified/corrected in such a manner that sufficient space is provided for data entry of more than one Customs Notification so that the bills may be processed in EDI only reducing the unnecessary paper work for both trade and department.

(The views are authors' personal views)